Contemporary Economic Issues
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Course Introduction
Contemporary Economic Issues examines the pressing economic challenges and debates facing societies today, including topics such as globalization, income inequality, unemployment, financial crises, environmental sustainability, and the impact of technology on labor markets. Students will explore the causes and consequences of these issues through current events, policy analysis, and empirical research, developing critical thinking skills and informed perspectives on economic policy decisions in a rapidly evolving global context.
Recommended Textbook
Macroeconomics 5th Edition by
R. Glenn Hubbard
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Chapter 1: Economics: Foundations and Models
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Q1) Define allocative efficiency.Explain the significance of this concept in economics?
Answer: Allocative efficiency is an efficiency criterion that describes a situation where the marginal benefit (or marginal valuation)of the last unit purchased is equal to the marginal cost of producing that unit.In other words,allocative efficiency occurs when production reflects consumer preferences.This is a significant concept in that all societies face scarcity which necessitates that societies make choices about what goods and services to produce.To maximize society's wealth,resources must flow to their highest valued use.This value is determined by consumers.
Q2) Scarcity refers to the situation in which
A)unlimited wants exceed limited resources.
B)unlimited resources exceed limited wants.
C)a country's population is larger than its resource base.
D)a nation's poverty level increases faster than its population.
Answer: A
Q3) What is a market economy?
Answer: A market economy is an economy in which the decisions of households and firms interacting in markets allocate economic resources.
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Chapter 2: Trade-Offs,comparative Advantage,and the Market System
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Q1) On a diagram of a production possibility frontier,opportunity cost is represented by the slope of the production possibility frontier.
A)True
B)False
Answer: True
Q2) Which of the following statements about an entrepreneur is true?
A)purchases other factors of production in the output market
B)develops the vision for the firm and funds the producing unit
C)sells his entrepreneurial services in the output market
D)does not face personal risk
Answer: B
Q3) The opportunity cost of taking an on-line history class is
A)the knowledge and enjoyment you receive from taking the class.
B)the value of the time spent on line.
C)equal to the highest value of an alternative use of the time and money spent on the class.
D)zero because there is no classroom time involved if you are enrolled in the course.
E)the cost of tuition and fees only.
Answer: C
Page 4
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Q1) If the price of propane-fueled gas grills was to decrease,then
A)the demand for propane would decrease.
B)the demand for propane would increase.
C)the quantity of propane demanded would increase.
D)the quantity of propane demanded would decrease.
Answer: B
Q2) Refer to Figure 3-1.An increase in the price of the product would be represented by a movement from
A)A to B.
B)B to A.
C)D<sub>1</sub> to D<sub>2</sub>.
D)D<sub>2 </sub>to D<sub>1</sub>.
Answer: B
Q3) In response to a shortage the market price of a good will rise; as the price rises,the demand will decrease and supply will increase until equilibrium is reached.
A)True
B)False
Answer: False
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Chapter 4: Economic Efficiency, government Price Setting, and Taxes
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Q1) The total amount of producer surplus in a market is equal to the area above the market supply curve and below the market price.
A)True
B)False
Q2) "Taxes are what we pay for a civilized society." This statement was made by
A)Adam Smith.
B)Oliver Wendell Holmes.
C)Herbert Hoover.
D)Franklin Roosevelt.
Q3) Refer to Figure 4-1.If the market price is $3.00,what is the consumer surplus on the first ice cream cone?
A)$0.50
B)$1.00
C)$5.50
D)$9.00
Q4) The sum of consumer surplus and producer surplus is equal to A)the deadweight loss.
B)the economic surplus.
C)zero.
D)total profit.
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Chapter 5: The Economics of Health Care
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Q1) The Congressional Budget Office estimates that ________ account(s)for less than 1 percent of health care costs in the United States.
A)the aging population
B)uninsured patients receiving treatment in hospital emergency rooms that could have been provided less expensively at doctor's offices
C)the payments to settle malpractice lawsuits and the premiums doctors pay for malpractice insurance
D)advances in medical technology
Q2) In the United States in 2012,a majority of people received health care through A)Medicare.
B)Medicaid.
C)their employers.
D)individually purchased insurance policies.
Q3) The number of people receiving Medicare is expected to grow to 80 million by the year
A)2105.
B)2020.
C)2030.
D)2075.
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Chapter 6: Firms,the Stock Market,and Corporate Governance
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Q1) A firm's net income is also its A)economic profit.
B)balance sheet.
C)accounting profit.
D)opportunity cost.
Q2) Tanesha sells homemade candles over the Internet.Her annual revenue is $64,000 per year,the explicit costs of her business are $17,000,and the opportunity costs of her business are $22,000.What is her economic profit?
A)$17,000
B)$25,000
C)$42,000
D)$47,000
Q3) Which of the following is a characteristic of stock?
A)Stock represents a promise to repay a fixed amount of funds.
B)The face value or principal plus interest is repaid at a specified period of time.
C)The length of coupon payments is fixed by the stated maturity period.
D)Stock represents ownership in a firm.
Q4) How do unlimited and limited liability differ?
Q5) How does a firm raise external funds through direct finance?
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Chapter 7: Comparative Advantage and the Gains From International Trade
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Q1) Refer to Table 7-1.Use the table above to select the statement that accurately interprets the data in the table.
A)Bill has a greater opportunity cost than Rob for picking berries.
B)Bill's opportunity cost for catching fish is less than Rob's.
C)Rob has a greater opportunity cost than Bill for picking berries.
D)Bill's opportunity cost for picking berries and catching fish are both greater than Rob's.
Q2) Which of the following is an example of a trade restriction?
A)Japan places a tax on all Korean automobiles.
B)Domestic wine is more expensive than wine imported from Chile.
C)The United States,Canada,and Mexico sign the NAFTA agreement.
D)Consumers prefer German beer to domestic beer.
Q3) Refer to Table 7-6.If the actual terms of trade are 1 belt for 1.5 swords and 70 belts are traded,how many swords will Estonia consume?
A)95
B)100
C)105
D)200
Q4) What was the GATT,why was it established,and why and with what was it replaced?
Page 9
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Chapter 8: GDP: Measuring Total Production and Income
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Q1) Statistics on real GDP during World War II may give a misleading indication of whether World War II was a period of prosperity because
A)inflation may have been considerably higher than estimated.
B)most of the increased production was for military goods,not consumption goods.
C)government agents purposely inflated the production numbers to maintain American support for the war.
D)government agencies were shorthanded and did a particularly poor job of collecting data.
Q2) Nominal GDP is GDP in a given year
A)adjusted for inflation.
B)adjusted for anticipated inflation.
C)valued in the prices of that year.
D)valued in the prices of the base year.
Q3) The purchase by a household in China of a CD produced in the United States is included in U.S.
A)consumption expenditures.
B)investment expenditures.
C)government purchases.
D)net exports.
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Chapter 9: Unemployment and Inflation
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Q1) If inflation is completely anticipated,
A)no one loses in the economy.
B)borrowers lose in the economy.
C)lenders lose in the economy.
D)firms lose because they incur menu costs.
Q2) Which of the following describes the accuracy of the Consumer Price Index?
A)Changes in the CPI accurately reflect the true rate of inflation.
B)Changes in the CPI understate the true rate of inflation.
C)Changes in the CPI overstate the true rate of inflation.
D)Changes in the CPI are unrelated to the true rate of inflation.
Q3) If inflation increases unexpectedly,then
A)borrowers pay a higher real interest rate than they expected.
B)lenders receive a lower real interest rate than they expected.
C)lenders gain and borrowers gain.
D)neither borrowers nor lenders lose.
Q4) In recent years,economists have come to rely more on the establishment survey rather than the household survey to analyze current labor market statistics.
A)True
B)False
Q5) Describe how inflation can be costly even if it is anticipated.
Page 11
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Chapter 10: Economic Growth, the Financial System, and Business Cycles
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Q1) A government budget surplus from reduced government spending (no change in net taxes)will ________ the level of investment in the economy and ________ the level of saving (private plus public)in the economy.
A)increase; decrease
B)increase; increase
C)decrease; increase D)decrease; decrease
Q2) Because Whirlpool produces durable goods,the demand for their goods
A)is likely to increase during recession.
B)declines when incomes in the economy are rising.
C)is consistently high,regardless of the state of the economy.
D)tends to follow the business cycle.
Q3) Refer to the Article Summary.Unlike in the UK,labor productivity in the other G7 nations has increased since 2007.An increase in labor productivity
A)will increase the labor force participation rate.
B)allows the average consumer to increase consumption.
C)will create short-run,but not long-run,economic growth.
D)will increase output and decrease wages in the long run.
Q4) How are unemployment,inflation,and the business cycle related?
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Chapter 11: Long-Run Economic Growth: Sources and Policies
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Q1) According to Nobel laureate Douglass North,one reason why the Industrial Revolution occurred in England before many other countries was because the king in England consistently maintained control over the court system and the government.
A)True
B)False
Q2) The economic growth model predicts that ________ across countries will converge over time.
A)income levels
B)GDP per capita
C)foreign direct investment rates
D)growth rates
Q3) An economy that grows too slowly fails to raise living standards.
A)True
B)False
Q4) Which of the following is not one of the three sources of technological change?
A)additional amounts of existing capital
B)better machinery and equipment
C)increases in human capital
D)better means of organizing and managing production
Page 13
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Chapter 12: Aggregate Expenditure and Output in the Short Run
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Q1) If disposable income increases by $100 million,and consumption increases by $90 million,then the marginal propensity to consume is
A)0.9.
B)0.8.
C)0.75.
D)0.6.
Q2) An unplanned decrease in inventories results in
A)a decrease in planned investment.
B)an increase in planned investment.
C)actual investment that is greater than planned investment.
D)actual investment that is less than planned investment.
Q3) What impact does a higher price level have on interest rates,wealth,and investment spending?
Q4) ________ is defined as the value of a household's assets minus the value of its liabilities.
A)Household income
B)Household wealth
C)Personal household consumption
D)Planned household investment
14
Q5) What is the main reason for changes in GDP in the short run?
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Chapter 13: Aggregate Demand and Aggregate Supply Analysis
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Q1) A supply shock causes the long-run aggregate supply curve to shift left,decreasing the price level.
A)True
B)False
Q2) Most economists agree that an automatic mechanism brings the economy back to potential GDP in the long run.In mid-2011,two years after the recession of 2007-2009 had ended,real GDP in the United States
A)had returned to potential GDP.
B)had exceeded potential GDP by 1.5 percent.
C)remained more than 7 percent below potential GDP.
D)was predicted to never return to potential GDP.
Q3) ________ of unemployment during ________ make it easier for workers to ________ wages.
A)High levels; a recession; negotiate higher
B)Low levels; an expansion; negotiate higher
C)Low levels; a recession; accept lower
D)High levels; an expansion; accept lower
Q4) Explain how the aggregate demand and aggregate supply model can be made more dynamic.
Q5) Explain the three reasons the aggregate demand curve slopes downward.
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Chapter 14: Money, banks, and the Federal Reserve System
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Q1) Economies cannot function without money.
A)True
B)False
Q2) What are the four functions of money? Can something be considered money if it does not fulfill all four functions?
Q3) Money is
A)an asset that people are willing to accept in exchange for goods and services.
B)a liability that people are willing to accept in exchange for goods and services.
C)the income one earns over a period of time.
D)one's assets net of one's liabilities at any point in time.
Q4) Money will fail to serve as a medium of exchange if it ceases to be a store of value.
A)True
B)False
Q5) The Federal Open Market Committee consists of
A)the seven member Board of Governors of the Federal Reserve.
B)the 12 Federal Reserve Bank Presidents.
C)five of the Federal Reserve Bank Presidents.
D)the Board of Governors plus five of the Federal Reserve Bank Presidents.
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Chapter 15: Monetary Policy
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Questions
Q1) Refer to Table 15-3.Consider the hypothetical information in the table above for potential real GDP,real GDP and the price level in 2014 and in 2015 if the Federal Reserve does not use monetary policy.If the Fed uses monetary policy successfully to keep real GDP at its potential level in 2015,which of the following will be lower than if the Fed had taken no action?
A)real GDP and the unemployment rate
B)real GDP and the inflation rate
C)real GDP and potential GDP
D)potential GDP and the inflation rate
Q2) The Federal Reserve can directly affect its monetary policy ________,which then affect its monetary policy ________.
A)goals; targets
B)goals; tools
C)targets; goals
D)targets; tools
Q3) An argument in favor of the Federal Reserve adopting inflation targeting is that in the long run,the Fed can have an impact on inflation but not on real GDP.
A)True
B)False
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Chapter 16: Fiscal Policy
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Q1) An increase in government spending lowers interest rates and increases the rate of investment in new capital.
A)True
B)False
Q2) Which of the following is an example of discretionary fiscal policy?
A)an increase in unemployment insurance payments during a recession
B)an increase in income tax receipts with rising income during an expansion
C)the tax cuts passed by Congress in 2001 to combat the recession
D)a decrease in food stamps issued during an expansion or boom
Q3) The multiplier effect refers to the series of
A)autonomous increases in consumption spending that result from an initial increase in induced expenditures.
B)induced increases in consumption spending that result from an initial increase in autonomous expenditures.
C)autonomous increases in investment spending that result from an initial increase in induced expenditures.
D)induced increases in investment spending that result from an initial increase in autonomous expenditures.
Q4) What is the "tax wedge"?
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Chapter 17: Inflation, unemployment, and Federal Reserve Policy
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Q1) If workers accurately predict the rate of inflation,is there a short-run trade-off between inflation and unemployment,as predicted by the Phillips curve? Why or why not?
Q2) The actual real wage is lower than the expected real wage if
A)actual inflation is less than expected inflation.
B)expected inflation is less than actual inflation.
C)actual unemployment is less than expected unemployment.
D)actual unemployment is less than actual inflation.
Q3) Refer to Figure 17-1.What should the Federal Reserve do if it wants to move from point A to point B in the short-run Phillips curve depicted in the figure above?
A)buy treasury bills
B)sell treasury bills
C)lower the discount rate
D)increase the money supply
E)lower taxes
Q4) What action should the Fed take if it wants to move from a point on the short-run Phillips curve representing low unemployment and high inflation to a point representing higher unemployment and lower inflation?
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Q5) Why is the credibility of the Fed's policy announcements particularly important?
Chapter 18: Macroeconomics in an Open Economy
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Q1) If there is currently a surplus of dollars,which of the following would you expect to see in the foreign exchange market?
A)The dollar will appreciate.
B)The dollar will depreciate.
C)There will be a decrease in the demand for dollars.
D)There will be a decrease in the supply of dollars.
Q2) The United States has a trade ________ with all its major trading partners and a trade ________ with every region of the world except for Latin America.
A)deficit; deficit
B)deficit; surplus
C)surplus; deficit
D)surplus; surplus
E)deficit; balance
Q3) Explain and show graphically the effect of a decrease in U.S.budget deficits that decrease U.S.interest rates on the demand and supply of U.S.dollars for euros.
Q4) Why is the U.S.trade deficit almost always larger than the U.S.current account deficit?
Q5) Explain the relationship between net exports and net foreign investment.
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Chapter 19: The International Financial System
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Q1) The currency adopted by most countries in ________ is referred to as the euro.
A)Western Europe
B)Eastern Europe
C)Europe and Asia
D)Southern Europe and Northern Africa
Q2) Refer to Figure 19-11.The graph above depicts supply and demand for British pounds during a trading day.At a fixed exchange rate of $2.00 per pound,the pound is ________ versus the dollar.A ________ of the pound would correct the fundamental disequilibrium that exists in this market.
A)undervalued; devaluation
B)undervalued; revaluation
C)overvalued; revaluation
D)overvalued; devaluation
Q3) What do reports that the dollar is "undervalued" mean? How will foreign exchange markets respond to this information? Support your answer graphically.
Q4) One reason purchasing power parity does not exactly hold is that many goods are not traded internationally.
A)True
B)False
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